Articles Published in: 2013

December 5, 2013

FHA Loan Down Payments–Can A Family Member Loan The Money?

We’ve been discussing FHA loan down payments quite a lot lately–there are many questions about the required 3.5% minimum down payment for new purchase FHA home loans. This down payment is known as a “minimum cash investment” and while it is definitely lower than the money down required of many conventional loans, it can still be difficult for some borrowers to pull the money together out of pocket. In such cases, the FHA does permit borrowers to apply for collateralized loans from third parties with no financial stake in the loan transaction. But some borrowers would rather turn to a family member for such a loan instead. Does the FHA, with its requirements that all down payment sources be scrutinized, allow such a loan from a family member? The answer | more...

December 5, 2013

FHA Loan Down Payment Sources: Disaster Relief Grants and Loans

By Joe Wallace

Whenever a natural disaster strikes and the affected counties become federally-declared disaster areas, one source of help comes from FHA loan programs such as the FHA 203(k) Rehab loan. There may also be FEMA, state and local assistance for borrowers trying to recover from storm damage or other disaster-related problems. Some can’t rehab a damaged home and must look for a new place to live. When it comes to new purchase FHA loans, could certain types of disaster relief count as a legitimate source of down payment funds? If those sources meet FHA approval, the answer could be yes. According to HUD 4155.1, Chapter Five Section B, “Grants or loans from state or Federal agencies, such as the Federal Emergency Management Agency (FEMA), that provide immediate housing assistance to individuals | more...

December 4, 2013

FHA Loan Downpayment Sources: Loans

By Joe Wallace

There are many questions about the required minimum downpayment for FHA home loans. Borrowers are required to put a minimum amount (3.5%) down on the FHA loan, and the money used to make this down payment must come from what the FHA terms “approved sources”. Those sources can include the borrower’s own money from savings, investments, cashed-in stocks, and many other accounts. Why does the FHA put scrutiny on the sources of down payment money? One reason is to avoid conflicts of interest between lender and borrower–the lender cannot provide down payment funds to the borrower, for example. A borrower who cannot afford to make a down payment out-of-pocket may need to apply for a collateralized loan for some or all of the downpayment amount. FHA loan rules permit this | more...

December 3, 2013

FHA Loan Downpayment and Rent Credit: A Reader Question

By Joe Wallace

A reader asks, “If leasing a property that you intend to purchase can part of each month’s rent go towards the full downpayment amount?” The short answer to this question is, “It depends”. Much depends on whether or not such rent credit meets FHA loan requirements. The FHA loan rulebook, HUD 4155.1, states that rent credit could be considered a legitimate source of down payment funds, but only if certain standards are met. This information is found in HUD 4155.1, Chapter Five Section B, which says, “The cumulative amount of rental payments that exceed the appraiser’s estimate of fair market rent may be considered accumulation of the borrower’s cash investment.” FHA instructions to the lender in these cases include the following: “The endorsement package must include the • rent with | more...

December 2, 2013

FHA Loan FICO Score Requirements: A Reader Question

By Joe Wallace

A reader asks, “What if my credit score is below 600, but am now cleaning up my record so I can purchase a home. Not a pricey home but one I can retire in some day. I checked my credit report and some of the things on it are no longer a problem, and now paid, but they remain on it. I need to know as soon as possible because the small home I am interested in might be sold soon.” Let’s examine what the FHA loan rulebook (HUD 4155.1) says about minimum FHA requirements for credit scores: This table is reproduced directly from HUD 4155.1. Note that the FHA minimum credit score requirements is 500 or above. But does this mean that a borrower with a FICO score of | more...

November 29, 2013

FHA Loans and Lack of Credit History

By Joe Wallace

Can a borrower be turned down for an FHA loan because of a lack of credit history? Recently we fielded a reader question about FHA loans that included the following line: “I do have older doctor bills that are outstanding but everything else I have saved and payed cash for, therefore making it unnecessary to have a credit card.” Would this lack of a credit card work against the FHA loan applicant? Before answering, it’s important to point out that a borrower’s credit activity, regardless of the type of credit (utility bills, rent payments, student loans, etc) must reflect a general pattern of reliability. A borrower that cannot show at least one year of on-time payments to all creditors in the time leading up to the new loan application may | more...

November 29, 2013

FHA Credit and Downpayment Requirements: A Reader Question

By Joe Wallace

A reader asks, “I have checked my credit report before and it came back insufficient. I do have older doctor bills that are outstanding but everything else I have saved and payed cash for, therefore making it unnecessary to have a credit card.” “If I had a portion of money for a down payment on a house would I be able to receive an FHA loan? And I would also like to know what the first step of buying a house is, because I would be a first time home buyer and have no idea what the process is.” Having the required minimum 3.5% cash investment is only one requirement for FHA loan approval, so the simple availability of the down payment wouldn’t be enough. A borrower is required to | more...

November 28, 2013

Happy Thanksgiving!

By Joe Wallace

From all of us, have a safe and happy holiday weekend! We’ll return with our regular posts tomorrow. Thanks for reading!

November 27, 2013

FHA Loans and Minor Credit Mistakes

By Joe Wallace

When some borrowers apply for an FHA loan for the first time, they may worry that past minor credit mistakes could hurt their chances at loan approval. Do these minor credit problems affect a borrower’s chances at an FHA mortgage? Or can the lender ignore certain minor credit issues if the borrower’s overall pattern of repayment and credit management is good? There is no simple answer to this question since the answer depends on the specifics of the borrower’s situation, but FHA loan rules in HUD 4155.1 do offer a few clues as to what you can expect in these cases. Any delinquent account must be investigated by the lender, even if in the end it doesn’t affect the application. According to FHA loan rules, “The lender must document the | more...

November 26, 2013

FHA Loans and Employment Verification

By Joe Wallace

One common misconception about FHA home loans is that the FHA requires a minimum time on the job in order for you to qualify for a FHA guaranteed mortgage loan. Specifically, some think that the FHA requires you to work for the same employer for at least two years, or some variation of this idea. This confusion might come from a misreading of the rules of FHA loans, which state that the lender is required to verify an FHA loan applicant’s work history for the past two years. That does not mean, “insure the applicant has worked for the same company for at least two years.” What does it mean? It simply means the lender must document the borrower’s work history over the last 24 months. In some cases, it | more...